Case study: procurement helped Vestas win top spot

Vestas has installed more wind-power technology than any other company – and its market-leading position has been credited to procurement excellence.

From its initial foray into wind energy in the 1970s, Vestas Wind Systems is now the top turbine-maker in the world. Latest Bloomberg data shows it has a global market share of 22%, with 10.1GW of its onshore turbines commissioned in 2018. The company says its global procurement team has contributed greatly to its industry-leading rank, with best-in-class industry margins and profit margins (9.5% EBIT margin in 2018) and a record order backlog of more than €28bn.

CPO Keith Forsyth says procurement’s proactive engagement in sales activities, with more than 100 sales tenders in 2018, has enabled the business to win in key markets such as Brazil, Russia and Argentina by developing market-specific strategies and building partnerships with suppliers. “In parallel, it has led an end-to-end cost-removal programme, focused on building capabilities and total cost reduction by driving a customer-focused mindset, early involvement of the full value chain and key suppliers,” he says.

The Danish company, whose origins can be traced back to 1898, designs, manufactures, installs and services wind turbines, with 101GW operating across 80 countries. Last year, Vestas’ COO Jean-Marc Lechêne was ranked the most influential supply chain leader in Denmark for 2018 by Supply Chain Media at Copenhagen Business School, and this year the company was awarded for procurement excellence at the World Procurement Awards.

The global procurement team comprises more than 350 people, around a third of whom are based at Vestas’ headquarters in Denmark, with the remainder spread around the world. Global procurement is responsible for supply chain management activities across the company.

It is structured as a matrix organisation, with global category management teams and five regional procurement offices (RPOs), explains Forsyth. “This enables procurement to be close to the customer and ensure the supply chain it sets up reflects the values of customers,” he says.

Forsyth says a structured process is developed for supplier relationship management, which enables procurement and suppliers to play a key role in everything from design to manufacturing to service. In addition, global procurement focuses on supporting top-line sales growth through active involvement in all regional sales teams.

Together with a keen focus on the customer, Forsyth says building the capability of procurement personnel has been at the heart of the programme. This, he says, is bringing benefits to both the team, in terms of creating an active learning environment, and generating value for Vestas and its customers.

Procurement is recognised internally as a strategic partner that has helped with company-wide wins of cost reduction, sales growth and improved quality and safety performance. All this leads to excellent feedback. “Employee survey results have improved,” says Forsyth, “and our annual supplier survey also shows, while tough at times, our suppliers rate Vestas higher on collaboration.”

Force majeure

Beginning as blacksmiths in 1898, the Hansen family built a manufacturing company that by 1968 was exporting hydraulic cranes to 65 countries. It moved into wind turbines in the 1970s and 1980s, overcoming an initial design fault by producing its own fibreglass parts. By the 1980s, early investment was paying off with ever-growing orders, particularly from the US. In 1985, US company Zond ordered a further 1,200 turbines, but on the second shipment, the delivery company went bankrupt and Vestas missed its deadline. The following year, the Danish government changed tax laws on turbines and halved the rebate. Vestas narrowly averted financial collapse, deciding in 1987 to focus solely on wind. It sold much of the group and established stock-based company Vestas Wind Systems.